CEO Howard Schultz On The Future of Starbucks

I include below an intelligent quote from Starbucks CEO Howard Schultz during yesterday’s conference call with investors. It is noteworthy because he references some data metrics that Fedex founder Fred Smith shared with him that points to the closure of many traditional retailers in the years ahead due to the Amazon effect.

Schultz believes, and I agree, that the best way to ensure the survival of your physical business location is to make it experience-based. If I were in commercial real estate and operated a mall, I’d bring in musical performers, circus/magic acts, integrated discounts (my brother frequents a campus bar that gives you a $5 coupon for a haircut when you buy a pitcher of beer), and even talk-show type discussion and motivational speaker type discussion to stimulate traffic.

I consider it a savvy business move for Schultz to focus on getting and keeping customers attracted to the socialization aspect of coffee rather than the sale of the product itself. Atmosphere is one of few advantages you can harness that e-commerce can’t.

The insight from Schultz:

“And also I think as we get around our table and we talk about the business, if you were in the room you’d hear us talking about the fact that we don’t want to use weather and we don’t want to use the uncertainty in the election as an excuse. But nevertheless, we are all trying to navigate through a difficult time. I mean I would label this time as just a high degree of uncertainty that obviously is domestically driven but has affected the rest of the world. Even though I don’t think we’ve ever witnessed such concern about what could happen in the U.S. as a result of the election.

I was talking to Fred Smith just a couple of weeks ago about his situation at FedEx and he shared with me a piece of research which showed a significant drop in foot traffic on Main Street and in malls, not only domestically and around the world, as a result of e-commerce, the Web, and what I’ll loosely describe as the Amazon effect. As a result of that, you’re certainly seeing large companies and small companies not only not open new stores, but announce closures.

And let me just speak to that. I know this is a little long-winded but I think it’s important. There’s no doubt that over the next five years or so, we are going to see a dramatic level of retailers not be able to sustain their level of core business as a traditional bricks-and-mortar retailer, and their omni-channel approach is not going to be sustainable to maintain the cost of their infrastructure. And as a result of that, there’s going to be tremendous amount of changes with regard to the retail landscape.

We believe, as we look down that pipe and look at the future, that our ability to maintain our growth in terms of new stores domestically and internationally, coupled with the fact that Starbucks still maintains a very special place in terms of a sense of community, the first-place environment, and people looking for and seeking out human contact and a place to go, that as these store closures occur, and they will, that we are going to be in a very unique position five years to ten years down the road because there’s going to be a lot less people competing for those customers. I’m not talking about the coffee category but overall.

But we are in the very, very early stages of a tremendous change in the bricks-and-mortar footprint of retailers domestically and internationally as a result of the sea change in how people are buying things, and that’s going to have, I think, a negative effect on all of retail. But we believe that it’s going to have ultimately a positive effect on the position that we occupy and the environment that we create in our stores.

So short answer, I think we got to get through this uncertainty. We’re playing the long game in everything we do and we’re going to continue to do everything we can to win the hearts and minds of our customers and invest in our people, and really, I think, create a breakthrough innovation as a result of what we’re doing with the Roastery and other things.”

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